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Can I enter a disallowed loss on Schedule K-1 1041 return in SureFire?

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📊 What to Do Instead (Scenarios)

Step 1: If the underlying asset is sold and the PAL becomes an active loss

Use this when you need to report the change in character after a sale.

If the underlying asset is sold and the PAL becomes an active loss, it can be reported on the Sch K-1 as an NOL. However, the NOL would still be trapped in the estate until the final year when it could be reported on Sch K-1, line 11d.

Step 2: If the asset is distributed in kind to the beneficiary

Use this when the trust distributes property instead of cash.

If the asset is distributed in kind to the beneficiary, the PAL is added to the beneficiary's basis of the underlying asset.

Step 3: If deductions on Form 1041 exceed income

Use this when Form 1041 lines 10 through 15a/15c create excess deductions.

If deductions on 1041, lines 10 - 15a, 15c exceed income on line 9, the excess deductions are disallowed. However, in the final year of the trust the amount that exceeds the income can be reported on Sch K-1, line 11a.

Step 4: If you have short and long term capital loss carry forwards

Use this when you are carrying forward capital losses to the trust’s final year.

The same holds true for short and long term capital loss carry forwards which are reported on Sch K-1, lines 11a b.

📚 Additional IRS References

For more information on completing Form 1041, see IRS Instructions for Form 1041 and Schedules A, B, G, J and K-1.

For more information on Passive Activity Losses, see IRS Tax Topic 425 Passive Activities - Losses and Credits.

Tags: federal,form